OIG Comments on PAMA Plan and Exclusion of Many Labs from Reporting

Inspector general says results will be skewed because CMS won’t require data from certain labs

ON THE SUBJECT OF LAB TEST MARKET PRICE REPORTING as required under PAMA, many clinical laboratory executives, pathologists, and industry experts see deep flaws in the process the federal Centers for Medicare & Medicaid Services has established. Yet, CMS itself seems blind to these flaws.

Fortunately, the clinical lab executives are not alone. The Office of the Inspector General has issued a report calling attention to the flaws in how CMS will implement the section of the Protecting Access to Medicare Act (PAMA) that requires some labs to report market price data.

Unfortunately, the OIG does not comment on whether CMS officials are interpreting the PAMA statute as Congress intended. Many clinical laboratory professionals who have read the law believe that CMS is acting contrary to the language of the statute and the intent of Congress.

OIG has Concerns

What OIG does explain is its concern about the way CMS has included certain classes of labs in the reporting mandate, while deliberately excluding a class of labs that are paid higher prices by private health insurers and would thus tend to move the weighted market price average calculated by CMS higher than agency officials would like.

Excluding this class of clinical laboratories from the pool of reported private payer price data will skew the results downward in a way that favors CMS, experts say. But that’s just one important criticism.

Another criticism is that CMS will base its new payment rates for lab tests on data from only 5% of labs, again creating the probability of skewed market data. Those 5% of labs got 69% of Medicare payments for clinical laboratory tests in 2015, OIG said in its Data Brief, Medicare Payments for Clinical Laboratory Tests in 2015: Year 2 of Baseline Data.

Another problem the OIG cited is that about half of all independent labs will be required to report what private payers paid them for clinical laboratory tests, but only a small portion of physician office labs and only a few hospital labs are required to report such data.

“Thus, new payment data will be based primarily on private payer data from independent labs,” the OIG reported.

Pathologists and lab administrators will find that the OIG report contains an impressive collection of data about what CMS pays under Medicare Part B for the clinical laboratory tests. The most interesting facts in the report involve how CMS’ data-collection efforts under PAMA will skew the data. The report also makes the following key points:

  1. The drug-testing business is booming: Medicare paid 19% more for toxicology tests in 2015 than it did in 2014.
  2. Medicare payments for molecular pathology tests declined in 2015 by 44% over what CMS paid in 2014
  3. Although the total amount that CMS pays for lab tests is expected to drop overall, what CMS pays for some tests will rise in some parts of the country.
  4. Certain aspects of the new payment system will require ongoing monitoring. (See sidebar below.)

On the issue of how CMS’ data-collection effort will skew the results, the OIG report is clear. Not only will CMS exclude about half of the nation’s independent labs from reporting private payer price data, but the federal agency will also exclude most physician office labs and almost all hospital laboratories from reporting this data.

CMS excludes Some Codes

What OIG calls “specific test procedure codes” also will be excluded. For example, those clinical labs required to submit price data to CMS do not need to report payments if a patient receives a clinical lab test and other medical services and a private health plan makes a single payment for the clinical laboratory test and the other services combined.

After listing all the reasons some data will be excluded from the data-collection process, and just before the conclusion to the report, the OIG adds this one ominous sentence without any more elaboration: “If the data that are not reported are systematically lower than the data that CMS will use to set new payment rates, the decreases in Medicare payment rates under the new payment system could be limited.” This comment implies the opposite of the criticisms made by many in the clinical lab industry, that the exclusion of these labs from reporting means CMS will not get data from labs which are paid higher prices by private payers than the Medicare CLFS.

Another reason for the OIG’s concern is that the new rates will be based on data paid to only 5% of labs, and these 5% of labs (12,547 labs) got 69% of CMS’ CLFS payments last year. However, that leaves the labs that got 31% of Medicare Part B payments—and a comparable proportion of private payer lab test payments— excluded from the reporting requirements. The OIG acknowledged that fact, stating, “The other 95% of all labs (248,977 labs) got the remaining 31% of CMS’ CLFS payments last year.”

OIG Report: Monitoring Of PAMA Will Be Needed

FOR THE FEDERAL CENTERS FOR MEDICARE & MEDICAID SERVICES to get the most from its data-reporting initiative under PAMA, it will need to monitor three areas of the program closely, the Office of Inspector General said in a recent report.

The first area that will need monitoring involves what Medicare could pay for some lab tests by changing to a single national fee schedule, the report said. “Despite expectations that the new payment system will result in lower national rates for most tests, the new rates will nonetheless cause payments to increase in locations where Medicare currently pays rates that are lower than the new national rate for that test,” the report explained. Also, median prices from private payers could be higher than what Medicare pays for some tests. If so, then the new Medicare payment rates for those tests will be higher in all areas, OIG said.

Second, under the new system, Medicare may pay more for those lab tests than it pays under “bundled” rates because it will no longer use those rates. For example, CMS limits current payments for some blood test profiles to the lower of the profile rate or the total of what it would pay for all the individual tests together. But under the new system, payment will be based on the weighted median of private payer rates.

Third, the OIG said that the lack of prices from private payers could limit the cuts CMS makes in lab test payments because certain labs will not be required to report their private payer data, including about half of independent labs, most physician office labs, and virtually all hospitals.

Although what CMS paid labs for tests overall in 2015 was mostly unchanged from what it paid in 2014, payments for pain management and toxicology tests increased considerably as more health insurers and physicians became concerned about drug abuse for therapeutic drugs, such as opiates, and other illicit drugs, such as methamphetamine.

For all drug tests, CMS paid 19% more in 2015 than it did the previous year. In 2014, CMS paid $910 million for these tests, and last year it paid $1.1 billion for those tests. For 18 different drug tests, CMS payments rose by at least $1 million each, the report said.

While payments by Medicare for drug tests rose, payments for molecular pathology tests declined by 44% in 2015 versus what CMS paid for these tests in 2014. Payments dropped from $466 million in 2014 to $259 million last year. This decrease was largely concentrated in payments for three tests (which the report did not name).

25 Lab Tests, 59% of Spend

Most of what CMS paid for Part B clinical lab testing went to just 25 lab tests. For these 25 tests, CMS paid a staggering $4.1 billion in 2015, slightly less than the $4.2 billion it paid for these tests in 2014. This $4.1 billion amount represents 59% of Medicare payments for all lab tests under the CLFS last year.

Lab administrators should note the importance of this fact: Changes in the Medicare payment rates for these 25 tests could have a significant effect on overall Medicare spending for Part B lab tests when the new payment system mandated by PAMA goes into effect in 2018.

Of the top 25 tests, CMS spent more than $200 million on each of the top eight in 2015. “Combined, these eight tests totaled $2.7 billion and accounted for about two-thirds of Medicare payments for the top 25 tests,” the report said. “The remaining 17 tests totaled $1.4 billion and accounted for the remaining one-third of payments.”

The OIG also pointed out that a small proportion of labs collected most of the payments for the top 25 clinical laboratory tests: Last year, only 1% of labs (292 out of 29,101 labs) got 54% of all Medicare Part B payments for the top 25 lab tests and each of these 1% of labs got an aver- age of $7.6 million, the report said.

Some Medicare Test Prices Will Rise to Match NLA

WILL ALL LABS SEE MEDICARE PART B PRICE CUTS GOING FORWARD? At least in the short term, labs in some regions of the United States may actually see increases in prices CMS pays for some tests, the Office of Inspector General reported.

Payments will rise for those labs in areas that have lab test prices lower than that of the National Limitation Amount (NLA), the OIG said. The change to a single national rate will cause those test prices to increase in certain areas under the new payment system, OIG reported.

“For example, in 2015 Medicare paid $58.79 for a given drug test in Ohio, whereas in most areas of the country, it paid the NLA of $98.96,” the report stated. “Under the new payment system, Medicare’s rate for this test in 2018 can decrease by no more than 10% from the 2015 NLA of $98.96—i.e., to $89.06. When CMS implements the single fee schedule in 2018, Medicare will pay at least 51% more in Ohio for this drug test than it does under the 2015 rate in the current payment system (an increase from $58.79 to $89.06—potentially more).”

OIG reported that Medicare payments will rise in some areas for 22 of the top 25 lab tests. In 38 states, Medicare payment rates for at least one of the top 25 tests will increase. In some states, Medicare payment rates will rise for seven of the top 25 tests, ranging from 2 cents to $30.27 per test, the report said.


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